Dosage compensation is the process by which the expression of X-linked genes is altered in one sex to counterbalance the difference in X-chromosome number between males and females in a heterogametic species. Degeneration of the non-recombining Y chromosome is a general facet of sex chromosome evolution. Y-chromosome degeneration creates selective pressure to equalize expression levels of X-linked genes in the two sexes, thus driving the evolution of dosage compensation. Drosophila miranda, a close relative of D. pseudoobscura (whose genome sequence is available) has a newly formed sex chromosome system. Its neo-Y chromosome is in transition from an ordinary autosome to a degenerate Y. In response, the neo-X is evolving partial dosage compensation. We will exploit the D. miranda system to study the evolution of dosage compensation 'in action'using a comparative and functional genomics approach. Comparative sequence analysis combined with expression profiles of neo-sex linked genes will allow us to link molecular changes occurring on the neo-sex chromosomes to changes in gene expression. We will distinguish whether dosage compensation evolves on a gene-by-gene basis - in response to the formation of a degenerate copy on the Y chromosome - or whether dosage compensation evolves in discrete blocks along the X chromosome, involving several genes at a time. We will test whether maladapted or dosage- compensated genes show reduced levels of expression on the neo-Y, what types of changes reduce gene expression on the neo-Y, and whether certain classes of genes are more prone to degeneration than others. Finally, we will attempt to map de novo cis-acting binding sites on the neo-X chromosome that recruit the dosage compensation machinery. We will investigate the molecular nature of these binding sites, and test whether they were fixed by positive selection. This research will constitute significant progress in our understanding of the mechanism of dosage compensation in Drosophila and how it evolves.